Is Wall Street About to Become Deregulated? What Could Compliance Look Like in the Years Ahead?

Much has been made of what Trump 2.0 would look like for Wall Street, and with Gary Gensler leaving his role as chair of the Securities and Exchange Commission, the shackles may well be coming off for the US investment landscape. 

The appointment of Tesla, X, and SpaceX owner Elon Musk, as well as former Republican candidate Vivek Ramaswamy, to the newly formed Department of Government Efficiency also appears to be a major move towards deregulating several industries in the United States. 

President-elect Donald Trump has long pledged to significantly reduce the size of federal government and has highlighted Musk and Ramaswamy as driving forces for slashing excess regulations, cutting expenditures, and restructuring federal agencies in a statement shortly after his resounding election victory. 

Likening the movement to a modern Manhattan Project, Trump has indicated that deregulation would be transformative for his second term in office. 

But what could Trump’s sweeping changes mean for Wall Street? Markets initially reacted positively to the news of the Republican candidate’s reelection but warnings from the past and the threat of growth lost to tariffs could hamper growth-focused plans. 

Freeing Wall Street from Regulators

The regulatory climate in the United States has been heightened in the wake of the 2008 financial crash, and SEC chair Gary Gensler adopted a stern stance that brought significant levels of scrutiny and lawsuits that were particularly focused on the emergence of the cryptocurrency landscape and its growing exchanges. 

Gensler announced that he would step down from the role of SEC chair on January 20 as Trump takes office, and the President-elect is likely to recruit an ally to help scale back the reforms imposed since the 2008 crisis. 

Trump has also pledged to allow companies to raise funds with less scrutiny and pare protections for small-scale investors and borrowers, which could help to drive more growth throughout the financial sector. 

The news of Trump’s reelection sparked positive price movements throughout Wall Street, with shares in US banks including Citigroup, JPMorgan Chase, and Goldman Sachs rallying in premarket trading as investors speculated on whether the President-elect’s plan for lower taxes and regulatory reform would come to fruition. 

With another core pledge on the campaign trail involving the reduction of corporate tax rates to 15% from 21%, the pro-growth outlook drew a rousing reception among investors. 

Shares in Goldman Sachs rallied 17.18% in November thanks to optimism surrounding Donald Trump’s reelection, but could the loosening of regulatory shackles be impacted by other economic concerns ahead of the President-elect’s second term? 

The Threat of Tariffs

Trump has threatened to impose 25% tariffs on all imports from Mexico and Canada, with China subject to an additional 10% due to concerns over immigration and the exporting of illegal drugs to the country. 

Although deregulation and lower corporation tax promises to drive growth in the US, a study by Deutsche Bank claimed that a Trump victory would add around half a percentage point to US gross domestic product, but the imposition of tariffs would subtract around a quarter of a point from GDP. 

This means that the prospect of aggressive tariffs could undermine much of the pro-growth advantages brought to Wall Street. Because analysts believe that much of the additional cost implications of imports impacted by tariffs will be passed on to the consumer, we may see inflation once again rise in the United States during Trump’s second term. 

The cost of greater tax cuts is also a cause for concern, with the Committee for a Responsible Federal Budget suggesting that Trump’s tax and spending plans could increase government debt by $7.75 trillion over the next decade. 

With significant tax cuts for corporations, Trump and Department for Government Efficiency head Elon Musk will be banking on the rapid growth of US industry to overcome the short-term tax shortcomings, but the strategy will likely depend on higher consumer spending power that isn’t assured in a high-inflation economy. 

Deregulation Brings Unpredictability

The future of compliance is set to become far more lenient in the wake of Trump’s second term, but fiscal trust and responsibility could change the face of market access for institutional investors. 

Trump’s outspoken nature meant that the President caused a range of unexpected market movements throughout his first term, with comments on key topics such as the strength of the dollar to individual trade policies causing price movements throughout various areas of Wall Street. 

As a result, David Bianco, Americas chief investment officer at DWS Group, has claimed that markets are on edge over the level of communication that comes with the Trump administration, and deciphering noise from buy or sell signals could be a fresh challenge for institutions. 

Deregulation also means a more open Wall Street for companies to flourish, but the 2008 crash has served as a timely warning against loosening compliance, and with many emerging technologies like AI, fintech, and cryptocurrency all converging throughout the tech sector, the risk of more high profile collapses could become more common. 

2024 has already seen complications stem from the collapse of fintech savings company Yotta which could serve as a cautionary tale when pursuing deregulation as opposed to more stringent compliance measures to protect customers. 

As a result, we’re likely to see more institutions optimize risk management strategies to become more focused on manually auditing the credibility of investment decisions. Here, the artificial intelligence boom will help to actively monitor for red flags where regulators could miss important due diligence measures. 

Navigating a New Wall Street

Donald Trump’s resounding US election win has brought more power than ever before ahead of the President-elect’s second term. With a growth-oriented approach to financial markets, the short-term future of Wall Street appears positive. 

But with a patchy history with regulator leniency and the risk of a more complex economic outlook, long-term growth in a softer landscape for compliance is less-than-assured. 

For institutions, navigating an uncertain future for Wall Street with the help of automation tools and market insights could be a key factor in ensuring long-term sustainability. The future of compliance is likely to be self-regulation, and this can help to provide fresh opportunities throughout financial markets that are set to change considerably over the coming four years.